The Eastern Caribbean Currency Union: Would a Fiscal Insurance Mechanism Mitigate National Income Shocks?

January 1, 2012

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Paul Cashin, and Antonio Lemus. The Eastern Caribbean Currency Union: Would a Fiscal Insurance Mechanism Mitigate National Income Shocks?, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the nature of the shocks affecting the Eastern Caribbean Currency Union (ECCU), and examines whether a hypothetical Eastern Caribbean fiscal insurance mechanism could insure member countries of the union against asymmetric national income shocks. The empirical results suggest that a one dollar reduction in an ECCU member country's per capita personal income could trigger, through reduced income taxes and increased transfers, flows equivalent to about 7 percent of the initial income shock. Each member of the currency union could benefit as well, although the extent of shock mitigation differs across individual countries.

Subject: Disposable income, Income shocks, Income tax systems, National accounts, Personal income, Revenue administration, Taxes

Keywords: Caribbean, Disposable income, Eastern Caribbean Currency Union, ECCU country, ECCU growth, ECCU member, ECCU-member country, Fiscal insurance mechanism, Income shocks, Income tax revenue, Income tax systems, Insurance mechanism, Personal income, Transfers, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/017
Stock No:

WPIEA2012017
ISBN:

9781463931223
ISSN:

1018-5941

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